[Congressional Record Volume 145, Number 65 (Thursday, May 6, 1999)]
[House]
[Pages H2898-H2900]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




ANNUAL REPORT ON STATE OF SMALL BUSINESS -- MESSAGE FROM THE PRESIDENT 
                          OF THE UNITED STATES

  The SPEAKER pro tempore laid before the House the following message 
from the President of the United States; which was read and, together 
with the accompanying papers, without objection, referred to the 
Committee on Small Business:
To the Congress of the United States:
  I am pleased to present my fifth annual report on the state of small 
business. In 1996, the year covered by this report, more than 23.2 
million small business tax returns were filed. A record 842,000 new 
small employers opened their doors and new incorporations hit a record 
high for the third straight year. Corporate profits, employment 
compensation, and proprietorship earnings all increased significantly. 
Industries dominated by small firms created an estimated 64 percent of 
the 2.5 million new jobs.
  Small businesses represent the individual economic efforts of our 
Nation's citizens. They are the foundation of the Nation's economic 
growth: virtually all of the new jobs, 53 percent of employment, 51 
percent of private sector output, and a disproportionate share of 
innovations come from small firms. Small businesses are avenues of 
opportunity for women and minorities, first employers and trainers of 
the young, important employers of elderly workers, and those formerly 
on public assistance. The freedom of America's small businesses to 
experiment, create, and expand makes them powerhouses in our economic 
system.
     An Unprecedented Record of Success
  Looking back to the 1986 White House Conference on Small Business, 
one of the top priorities on the small business agenda was deficit 
reduction. Small business capital formation efforts had been undermined 
by interest rates driven sky-high by the demand for funds to service 
the growing national debt. Today I'm proud to say we've done what was 
thought nearly impossible then. This year we have converted the deficit 
to a surplus--and the budget deficit is no longer the issue it once 
was.

[[Page H2899]]

  And my Administration is committed to continuing the dramatic growth 
of the small business sector. We continue to pay close attention to the 
perspectives and recommendations of America's small business owners. 
The 1995 White House Conference on Small Business sent a list of 60 
recommendations to my Administration and the Congress--the result of a 
year-long series of conferences and a national meeting on the concerns 
of small firms. In their 1995 recommendations, the small business 
delegates told us they need less onerous regulation, estate tax relief 
for family-owned businesses, and still more access to capital to start 
and expand their businesses.
  On each of these fronts, and on many others, impressive steps have 
been taken. I have signed 11 new laws that address many of the 
delegates' concerns. In fact, meaningful action has been taken on fully 
86 percent of the 1995 White House Conference on Small Business 
recommendations.
     Easing the Tax Burden
  The Taxpayer Relief Act, which I signed in 1997, includes wins for 
small businesses and the American economy in the form of landmark tax 
reform legislation. The law will provide an estimated $20 billion in 
tax relief to small business over the next 10 years. It extends for 
three years the exclusion from taxable income of money spent by an 
employer on education for an employee. The unified gift and estate tax 
credit will increase the amount excluded from taxation on a transferred 
estate to $1.3 million for small family-owned businesses.
  The new law expands the definition of a home office for the purpose 
of deducting expenses to include any home office that is the business' 
sole office and used regularly for essential administrative or 
management activities.
  And capital gains taxes are reduced from 28 percent to 20 percent. 
This will help small businesses by encouraging investments in 
businesses that reinvest for growth rather than investments in 
companies that pay heavy dividends. The law also improves the targeted 
capital gains provisions relating specifically to small business 
stocks. Moreover, small corporations are exempted under the new law 
from alternative minimum tax calculations. This provision saves about 2 
million businesses from complex and unnecessary paperwork.

     Capital for Small Business Growth
  One of the Small Business Administration's (SBA) highest priorities 
is to increase small business access to capital and transform the SBA 
into a 21st century leading-edge financial institution. The SBA's 
credit programs--including the 7(a) business loan guarantee program, 
the Section 504 economic development loan program, the microloan 
program, the small business investment company program, the disaster 
loan and surety bond programs--provide valuable and varied financial 
assistance to small businesses of all types. The Small Business Lending 
Enhancement Act of 1995 increased the availability of funds for SBA's 
lending programs. In the 7(a) program in fiscal year 1997 alone, with 
approximately 8,000 bank and nonbank lenders approved to participate, 
45,288 loan guarantees valued at $9.5 billion were approved as of 
September 1997.
  My Administration developed community reinvestment initiatives that 
revised bank regulatory policies to encourage lending to smaller firms. 
When combined with lower interest rates, this led to a sizable increase 
in commercial and industrial lending, particularly to small businesses. 
And in the first year of implementation under the Community 
Reinvestment Credit Act, new data were collected on small business 
loans by commercial banks. The SBA's Office of Advocacy has been 
studying and publishing its results on the small business lending 
activities of the Nation's banks.
  And the Office of Advocacy launched a nationwide Internet-based 
listing service--the Angel Capital Electronic Network (ACE-Net) to 
encourage equity investment in small firms. ACE-Net provides 
information to angel investors on small dynamic businesses seeking 
$250,000 to $3 million in equity financing.
     Reforming the Regulatory Process
  The Small Business Regulatory Enforcement Fairness Act (SBREFA), 
fully implemented in 1997, gives small businesses a stronger voice 
where it's needed--early in the Federal regulatory development process. 
The law provides for regulatory compliance assistance from every 
Federal agency and legal remedies where agencies have failed to address 
small business concerns in the rulemaking process.
  The new process is working. Agencies and businesses are working in 
partnership to ensure that small business input is a part of the 
rulemaking process. In the summer of 1997, for example, the 
Occupational Safety and Health Administration, in conjunction with the 
SBA's Office of Advocacy, convened four regional meetings with small 
firms to discuss a safety and health program under development.
  Small firms are also witnessing more agency compliance assistance 
once regulations are in effect. Agencies are routinely providing 
compliance guides and lists of telephone numbers and e-mail addresses 
for small business assistance.
  And the law provides for a national ombudsman and 10 regional 
regulatory fairness boards to make it simple for small businesses to 
share their ideas, experiences, and concerns about the regulatory 
enforcement environment. The ombudsman and boards are addressing many 
concerns expressed by small firms in dealing with regulating agencies.
     Expanding Technology and Innovation
  Initiatives like the Small Business Innovation Research Program, the 
Small Business Technology Transfer Program, and the National Institute 
of Standards and Technology's Manufacturing Extension Partnership and 
Advanced Technology Program were put in place in the 1980s to channel 
more Federal funding to small business research and to help small 
businesses move ideas from the drawing board to the marketplace. 
Clearly, progress has been made; much remains to be done. New Internet-
based initiatives like the Access to Capital Electronic Network and the 
U.S. Business Advisor are designed to help many more small businesses 
make the connections they need to commercialize their innovative 
technologies.

     Enhancing International Trade and Federal Procurement 
         Opportunities
  During my Administration, our Nation has led the way in opening new 
markets, with 240 trade agreements that remove foreign barriers to 
U.S.-made products. Measures aimed at helping small firms expand into 
the global market have included an overhaul of the Government's export 
controls and reinvention of export assistance. These changes have 
cleared a path for small businesses to enter the international economy.
  To make certain that small companies can do business with the 
Government, my Administration and the Congress have streamlined the 
Federal procurement process through administrative changes and the 
Federal Acquisition Reform Act of 1996. The changes instituted in these 
reforms are cost-effective for the Government and are intended to 
enable businesses to compete more effectively for Government contracts 
worth billions of dollars.
  I am pleased that the SBA has instituted a new electronic gateway to 
procurement information, the Procurement Marketing and Access Network, 
or Pro-Net. This database on small, minority-owned, and women-owned 
businesses will serve as a search engine for contracting officers, a 
marketing tool for small firms, and a link to procurement 
opportunities.
     The Human Factor
  My Administration is moving to anticipate 21st century demands on our 
most important resource--our people. As a recent report by the SBA's 
Office of Advocacy points out, small businesses employed more people on 
public assistance in 1996 than did large businesses. Our Welfare to 
Work Partnership has already had positive results--we've moved two 
million Americans off welfare two full years ahead of schedule. And we 
are enlisting the help of more and more small business people to expand 
that record of success.
  We want to educate and train a work force that will meet all our 
future global competition. For those in the work force or moving into 
it, I recently signed legislation that consolidated the tangle of 
training programs into a single grant program so that people can move 
quickly on their own to better jobs and more secure futures. The 
Balanced Budget Act of 1997 encourages employers to provide training 
for their

[[Page H2900]]

employees by excluding income spent on such training from taxation. The 
SBA has also increased training opportunities for businesses by funding 
new export assistance centers and women's business centers across the 
country.
  Women have been starting their own businesses at a dramatic rate in 
recent years. More than 6 million women-owned proprietorships were in 
operation in 1994, a phenomenal 139 percent increase over the 2.5 
million that existed in 1980. But it is also women who are most 
affected by the lack of adequate child care. The SBA's Office of 
Advocacy has found that while small firms value the benefits of child 
care as much as large businesses, small businesses have been less 
likely to offer this benefit than large firms for a variety of reasons 
related to cost. The bottom line is that we've got to raise the quality 
of child care and make it more affordable for families. I have proposed 
tax credits for businesses that provide child care and a larger child 
care tax credit for working families.
  I am pleased that so many Americans of all races and nationalities 
are asserting their economic power by starting small businesses. This 
report documents the growth: the number of businesses owned by 
minorities increased from 1.2 million to almost 2 million in the 5-year 
period from 1987 to 1992. The Federal Government has a role in widening 
the circle of economic opportunity. Programs are in place to ensure 
that socially and economically disadvantaged businesses have a fair 
chance in the Federal procurement marketplace. The share of Federal 
contract dollars won by minority-owned firms has remained at 5.5 
percent for two years running--up from less than 2 percent in 1980. And 
recently the SBA and the Vice President announced new small business 
lending initiatives directed to the Hispanic and African American small 
business communities to give these Americans better access to the 
capital they need.

  We have been working for the past 5 years to bring the spark of 
enterprise to inner city and poor rural areas through community 
development banks, commercial loans in poor neighborhoods, and the 
cleanup of polluted sites for development. The empowerment zone and 
enterprise community program offers significant tax incentives for 
firms within the zones, including a 20-percent wage credit and another 
$20,000 in expensing and tax-exempt facility bonds. Under the 
leadership of the Vice President, we want to increase the number of 
empowerment zones to give more businesses incentives to move into these 
areas.
     Future Challenges
  America's small business community is both the symbol and the 
embodiment of our economic freedom. That is why my administration has 
made concerted efforts to expand small business access to capital, 
reform the system of Government regulations to make it more equitable 
for small companies, and expand small business access to new and 
growing markets.
  This is an important report because it annually reflects our current 
knowledge about the dynamic small business economy. Clearly, much is 
yet to be learned: existing statistics are not yet current enough to 
answer all the questions about how small, minority-owned, and women-
owned businesses are faring in obtaining capital, providing benefits, 
and responding to regional growth or downsizing. I continue to 
encourage cooperative Government efforts to gather and analyze data 
that is useful for Federal policymaking.
  I am proud that my Administration is on the leading edge in working 
as a partner with the small business community. Our economic future 
deserves no less. The job of my Administration, and its pledge to small 
business owners, is to listen, to find out what works and to ensure a 
healthy environment for small business growth.
                                                  William J. Clinton.  
  The White House, May 6, 1999.

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